Bank of England cuts growth estimate

Risk for growth outlook in 'eurozone' to the downside

By

EmilyChurch

LONDON (CBS.MW) -- The Bank of England on Wednesday lowered its expectations for growth in the U.K. for the year, while warning that growth in Europe is likely to remain sluggish.

Consumer spending has remained largely buoyant in Britain, but Europe's second-largest economy has seen its manufacturing sector slide into recession in the first two quarters of the year as production has shrunk.

Euro risk to the downside

The bank said it now expects growth in the 12-country eurozone to slow to around 2 percent for the year before edging up amid an expected strengthening in U.S. demand and assuming the euro interest rates continue to ease "in line with market expectations."

The bank said that the "outlook for domestic demand growth in the euro area has deteriorated in recent months, compounding the softening in external demand. Business and consumer confidence have declined further."

The risks to its growth projection for the eurozone are weighted to the downside, the bank said. The consensus of private economists for growth in the eurozone currently stands at 2.1 percent, according to Merrill Lynch research.

The Japanese economy "appears to be moving into recession," the bank said.

For the U.S., the U.K. central bank expects a gentle pickup in growth later this year in response to the Federal Reserve's rate cuts and the cuts in personal taxation.

Prospects elsewhere have, however, worsened since May.

Some U.S. technology companies have been telegraphing the downturn for sales in Europe. Cisco Systems
CSCO, +0.37%
Chief Executive John Chambers said Tuesday that its European, Japanese and Asia-Pacific markets appeared to be following domestic conditions and, as such, could decline more in the coming quarters. See full story on Cisco outlook

The Bank of England surprised the markets with a 25-basis-point cut in its key repo rate last week in response to the slowdown. With its August inflation report, the bank said it expects inflation to remain subdued, raising the prospect for an additional cut in rates.

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